Lebron Jason Inc. just paid a dividend (D0) of $3.00/share. The firm's dividend payment is expected to undergo fast growth for three years in a row at 85% each year (between t = 0 and t = 3); then the firm's dividend will grow at 40% each year for 2 more years (between t = 3 and t = 5) until it slows down to a permanent growth rate of 4% per year forever. Required rate of return (discount rate) for equity is 10%.

Based on the dividend discount model, how much should the company's stock (per share) be trading at?

Answer rating: 100% (QA)

To solve this problem we can use the dividend discount model DDM to calculate the present value of t... View the full answer